Energy companies are fining 2.7 million late bill-payers steep penalty fees

Research blasts energy firms for unreasonable penalty fees

Ofgem’s price cap was introduced in a bid to reduce bills but it only restricts the price your supplier can charge per kilowatt hour of energy (PA)

Energy companies are charging millions of homeowners unreasonable penalties for late payments having hidden the details deep in the small print of their contracts, new research has revealed.

Despite the penalties for customers who are late making payment running as high as 8 per cent, the study from comparethemarket.com shows that many households are simply unaware of the additional fees.

While most energy customers pay their bills by direct debit, almost a quarter do not meaning they are at risk of penalty charges for late payments. The research discovered that the majority of the big energy companies charge customers interest on unpaid bills if they do not receive payment within a fixed time – sometimes as little as 15 days.

The very, very small print

More than two-thirds of energy customers simply don’t know that their providers can charge interest on their bills if they miss a payment. Of course, it could be argued that they have been given the terms in advance and so their ignorance is their own fault.

However, the average set of terms and conditions runs to 14 pages and an epic 8,000 words, so it’s not surprising that not everyone spots the charge.

And details of late payment fees are often buried as deep as page 5, meaning it’s not at all surprising that the majority of customers simply haven’t got a clue.

Peter Earl, head of energy at the comparison site, accused providers of enjoying a “bill bonanza” at the expense of late payers and treating customers with contempt.

“Whilst the principle of charging interest on late payments isn’t unreasonable, there’s no excuse for hiding charges,” he argued. “Most consumers are understandably focused on the cost of energy, few people are aware of the late fees and charges levied on households who don’t comply with providers’ lengthy terms and conditions.

“Asking customers to read pages and pages of small print before agreeing to the terms of a basic utility, like energy, is pretty unreasonable.”

There’s also little justification for such lengthy T&Cs given that nPower succeeds in keeping its terms and conditions down to just one page, and does not charge interest on late bills. E.ON and First Utility charge 8 per cent APR and display that information on pages 6 and 4 respectively. The average interest rate is 4 per cent.

Customers who can least afford it

The problem is that those customers who are late paying bills are likely to be the very customers who can least afford the extra penalties.

Often the customers who struggle to meet the cost of their bills are the same customers who end up paying higher rates. Another good example is the 11m people in the UK who are on a prepayment meter.

Research from Citizens Advice has shown that prepay customers typically pay hundreds of more a year than those on standard bill-based payment.

And even low-income customers on standard contracts rather than pre-pay are being stung with higher bills. Customers on standard variable tariffs typically pay £141 more than the cheapest deal available.

Yet analysis carried out by Citizens Advice shows that 800,000 of the poorest pensioners in the country, along with 1.5 million low-income families with children are on their energy supplier’s standard variable tariff.

Gillian Guy, chief executive of Citizens Advice, said: “Energy firms are ripping off the loyal customers who can least afford it. Heating and lighting your home are basic necessities, not luxuries - but energy firms are still charging customers on the standard variable tariff £141 more on average for the same gas and electricity.”

Ofgem has imposed a temporary cap on how much energy companies can charge prepayment customers and Citizens Advice has called for that cap to be extended across more vulnerable households. Now Ofgem has mooted the prospect of a safeguard tariff for the poorest households, which could finally protect them from high prices.

Such measures would be welcome but they could take some time. In the meantime, customers can switch to find better deals and lower penalties.

Wake up to switching

Ofgem figures earlier this year that showed energy switching have risen to a six-year high. Despite many industry reviews and reports, switching remains the quickest way for households to bring down their bills by moving away from their supplier’s standard variable tariff.

Yet despite the increase, the majority of people do not move around. Research from GoCompare.com shows that 44 per cent of households have switched providers in the last three years but an astonishing 56 per cent haven’t. And 29 per cent say they have never switched energy firms.

Ben Wilson, energy spokesperson at the website, says: “Shopping around isn’t a gimmick, households that haven’t switched recently could save as much as £305 on their gas and electricity bills by moving to a new deal.

“Finding a new energy supplier is easy, all you need is your energy bill and a few minutes, and by the time you’ve finished your cup of tea you could save hundreds of pounds.”